By Ginika Igboke
The U.S. trade deficit narrowed slightly in 2025 but remained the third-largest on record, driven by record-setting import levels.
The trade gap totaled $901.5 billion in 2025, a modest 0.2 percent decrease from 2024, according to data released Feb. 19 by the Bureau of Economic Analysis.
Imports rose 4.8 percent to an all-time high of nearly $4.33 trillion, fueled in part by increased purchases of foreign computers. Exports climbed more than 6 percent to over $3.43 trillion, led by gains in nonmonetary gold, finished metal shapes, and natural gas.
However, the annual figures may reflect a sharp rise in imports during the first quarter of 2025, when companies accelerated foreign purchases ahead of President Donald Trump’s tariffs. Trade flows later stabilized after sectoral and reciprocal tariffs took effect.
Before the data release, Trump said the deficit had plunged by 78 percent “because of the tariffs being charged to other companies and countries,” adding in a Feb. 18 Truth Social post that the balance would turn positive this year “for the first time in many decades.”
Shifting Trade Gaps With Key Partners
The U.S. trade deficit with the European Union and China narrowed in 2025 compared with the prior year.
The shortfall with the European Union fell about 7 percent to $219 billion from $236 billion. The U.S.–China deficit declined 28 percent to $202 billion from $296 billion.
By contrast, trade gaps with Vietnam and Taiwan widened significantly, reaching $178 billion and $147 billion, respectively. The U.S. deficit with Mexico grew to $197 billion from $171 billion.
The shifting balances have raised questions about whether some Chinese goods are being rerouted through third countries to avoid tariffs.
On a monthly basis, the deficit surged 33 percent to $70.3 billion in December, up from $53 billion in November and exceeding expectations.
Imports increased 3.6 percent to $357.6 billion, driven by purchases of computer accessories. Exports fell nearly 2 percent to $287.3 billion, largely because of a decline in nonmonetary gold shipments.
According to The Yale Budget Lab, the average effective U.S. tariff rate now stands at 16.9 percent, up from about 2.3 percent when Trump took office.
Debate Over Tariff Impact
Tariffs are taxes imposed on imported goods. Economists generally say higher duties lead to one-time price increases that are often passed on to consumers.
While overall inflation has not surged dramatically as a result of tariffs, economists at the Federal Reserve Bank of New York say American firms and households are absorbing most of the cost.
In a Feb. 12 research paper, New York Fed economists estimated that U.S. businesses and consumers bear 86 percent of tariff costs, while foreign exporters cover 14 percent.
“Given that the average tariff in December was 13 percent … our results imply that U.S. import prices for goods subject to the average tariff increased by 11 percent (13 times 0.86) more than those for goods not subject to tariffs,” the report said, adding that higher prices have prompted companies to reorganize supply chains.
The White House sharply criticized the paper. In a Feb. 18 interview on CNBC’s “Squawk Box,” National Economic Council Director Kevin Hassett called it the worst paper he had seen “in the history of the Federal Reserve System,” arguing that its conclusions were flawed and overly partisan.
Supreme Court Review Looms
The administration’s trade agenda could face a legal test as the Supreme Court of the United States prepares to rule on whether Trump exceeded his authority under the International Emergency Economic Powers Act when imposing certain tariffs.
Trump has warned that an adverse ruling would create a “complete mess,” writing in a Jan. 12 Truth Social post that the government could owe “many Hundreds of Billions of Dollars” in repayments if the tariffs were struck down.
Even if the court rules against some measures, several tariffs would remain in effect, including levies on automobiles, auto parts, metals, and a 10 percent fentanyl-related tariff on China. Administration officials have said alternative legal tools are available to pursue the president’s trade goals.
Meanwhile, some Republican lawmakers have pushed back. Last week, the Republican-controlled House voted 219–211 to overturn tariffs on Canada, with six GOP members joining Democrats. The vote was largely symbolic, as any such legislation would likely face a presidential veto.
In 2025, the U.S. trade deficit with Canada totaled $46.4 billion.
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